Is Greece-zuela a possibility?

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Greece
That’s how you write “down with Merkel” in Greek

Greece has defaulted on one of its many liabilities to its creditors by missing a €1.5 billion  of its debt to the IMF. The Greek economy has already taken quite a toll, falling into depression. Greece’s economy has contracted by a quarter since the start of the crisis, and its unemployment rate is sitting over 25%.

You may be wondering why we should care.

Europe is a long ways away. Venezuela and Greece are far from intertwined, in either trade or in finance. And while both countries have many differences to point out, but the truth of the matter is that the depression facing the Greeks right now may well be a testament of our near future.

Both of these countries are struggling to make ends meet with their creditors. Greece lacks oil, its own currency, and perhaps a credible commitment to restore its way to fiscal sustainability. Venezuela has plenty of oil, a not-so “strong” Bolivar and an incompetent Government (to say the least.)

Yet Greece already defaulted on its debt, and the troika, (that is the ECB, the IMF and the European Commission) became Greece’s main creditors in order to contain a systemic risk of contagion within the Eurozone, and also to put Greece on the chopping boards by introducing austerity measures and restoring its public finances in exchange for bailout funds.

Whatever happens in Greece, it’s worth pondering whether Venezuela can default on its debt or not.

Most investment banks abroad believe that Venezuela will pay its liabilities (both PDVSA’s and the Republic’s) for the rest of 2015. Next year, however, will be a different story.

According to JP Morgan, Venezuela has a debt stock of around $140 billion (others think the figure is almost double that amount). PDVSA plus the Republic would have to transfer to their creditors around $6.3 billion in the next 2 quarters of 2015, and some $10 billion during 2016.

Greece’s debt-to-GDP ratio is at 190%, whilst Venezuela’s is just at 64,2% at an average exchange rate of 35Bsf per USD. (Apply the Simadi rate and you’re much closer to a Greek tragedy.)

Take into account that FX Reserves, according to the BCV, have plummeted from almost $29 billion five years ago, to 16.5 billion currently, and this implies very little wiggle room for steering the economy out of default. And in the context of falling oil prices, the alarms are ringing.

In fact, Venezuela has engaged in default before. As a matter of fact, it has done so 10 times (Latin America’s leader) according to the data by Reinhart & Rogoff. Bear in mind that the term default applies to both failing to meet payment of a debt as well as any restructuring of such liability. Also, they claim that as default ensues, a period of low to no growth for some time is a side effect.

So will we ever become a Greek tragedy?

The short answer might be yes, quite possibly. But unlike Greece, Venezuela is on its own for sorting its financial house in order. We don’t have the troika to bail us out (maybe the Chinese or Russians), nor do we have an IMF mission in the country – they haven’t visited since 2007. Also, most of our debt is held by private investors, and not public institutions such as the case for Greece. The Greeks just imposed capital controls…we did that twelve years ago, only making them more draconian as time flies by.

Many similarities and some divergence between these two nations, but it seems that heading into default-territory is becoming more of a fact than a likelihood. Should that happen, Greece’s crisis would look small compare to ours.

1 COMMENT

  1. Venezuela is already in crisis, pre-an almost assured default (barring an improbable oil spike due to Mid-East turmoil). With a reasonable 140 or such unified exchange rate post-election, Venezuela’s Debt/GDP will be more like 250%, higher than Greece’s. Both countries are similar in fiscal irresponsibility, Venezuela perhaps more so. Both have exhausted other people’s money. Both have irresponsible Leftists (Tsipras) in power. But, Venezuela’s corruption is galactical, and its population is abysmally uninformed/uneducated compared to Greece. There is no international imperative to still try to bail out Venezuela, as there is for Greece. Venezuela will probably barely make it to the Parliamentary elections on intl. payments, since it is politically bad not to, and there may still be a little barrel scraping left, as well as to avoid largely private creditors attaching international assets/oil tankers.

    • The demise of Venezuela’s economy has long been predicted on this site – and it’s like “Waiting for Godot” – he never comes and the demise never happens.

      Almost 2 years ago we had the same discussion and we are still wia5ting for Godot.

      What matters is the external debt in dolars and not the exchange rate whicha ccording to the hihgly reliable dolartoday is already as 500 and will probably be 1000 by year end.

      Govt debt to GDP ratio is currently 49.8% – easy to find by Googling – so what BS are you spinning. 49.8% (this is up to July 3 this year) is perfectly manageable so don’t het lost in your wishful thinking that the country will bo bankrupt because it somehow suits your political aganda.

      Venezuela owes about $103 billionn in external debt whereas Greece owes €340 billion ($391 billion)

      • I don’t care about Greece. I just see Venezuela compared to the rest of South America and I see now even a Colombian school teacher has a real purchasing power that is higher than that of a Venezuelan…and chances that he gets murder this year are only half as high…yeah, but Venezuela is doing fine.

        Venezuela’s economy is doing so fine that you won’t find syringes in most public hospitals right now.
        That doesn’t have to do with the economy? Sure not…sure.

      • Wow, there goes delusional Arturo whose *revolutionary* blinders don’t allow him to see reality. Are you loving the lo-o-o-ong (population control) line-ups, Arturo? Or do your pom-pom cheers on these boards and on behalf of the thugocracy, allow you certain ‘prebendas’? Meaning, those that can cut through the hardships that others must sustain — unnecessarily for an oil-producing nation, or rather, for a mismanaged and corrupt-laden oil-producing nation.

      • Of course, Arturo “naively” believes the hogwash put out by the Ven. Govt. to international organizations such as the World Bank, which incredibly accepts it at face value (like the FAO), and publish it as gospel. The reality is that, with JPM’s CONSERVATIVE estimate of external debt at $140bill. as a numerator, divided by current Venezuelan dollar oil gross income of maybe $25 bill. plus another $25 bill. in CONSTANT (non-fictional 6.30) dollars of non-oil export GDP (historically 50% of total GDP), making some $50 bill in total.GDP, equals about a conservative 250% external debt/GDP ratio (and does not include large Govt. Bs. internal debt). Venezuela is a POOR country, becoming poorer as we speak,

      • This dude is on acid. No, Arturito, la retro-economia de Cubazuela esta mejor que nunca, batiendo records a niveles historicos internacionalmente, por donde la veas. Godot vino, se quedo, se murio del asco y se fue a Grecia donde se vive mucho mejor, rolo e Bolsa.

        p.s. Cuanto te ROBAS semanal?

      • Wow! Those are some blinders “Arturo” is wearing. Of course, it is easier to avoid seeing the impact of the economic devastation when he doesn’t live here.

  2. Do we have some hard numbers on how much of the consilidated foreign debt of Pdvsa and the Republic is payable in 2016 and 2917 ?? I remember looking at a UBS report that had the numbers but havent got it at hand , the amount climbed in 2016 vs 2015 and went even higher in 2017. ?/

    If the defaullt does ocurr what does it mean for the countrys population?? can we continue to import the basic food stuffs the population needs to feed itself or is that supply threatened ?? Is there something doable which the govt can do to avoid that default absent any outside financial help or a sharp rise in oil prices.?? What can be expect to be the especific consequences of such default for the life of the average Venezuelan ??

        • The reserves themselves are not as valuable in themselves as one might assumme because to determine their value one would have to factor in how much net revenues they can produce after taking account of the huge costs and investments to be made to accomplish that revenue and the retribution of that investment . I saw this exercise being made years ago and the resulting value of the reservoirs themselves wasnt that great .!! We are nor rich because of the oil we have underground but because of the money that can be produced by making the investments and incuring the costs of its proeuction into a marketeable product . Probably the closest number one could use as reference to determine the value of the reservoirs would be the amount of royalty that would be payable for their exploitation which would likely not be 30% but something closer to 17% ( the average royalty paid in the US) . You might calculate the royalty to be paid in a 20 year exploitation period and taking it to present value with a discreet discount rate .and that would give you the amount to be recieved now.

        • Even to attempt this, difficult in the face of a very uncertain oil pricing/world carbon limits/reduction future, one needs the rule of unwavering law, completely absent in Venezuela,

    • Hello Bill,

      from the top of my head, Venz/PDV combined have payments outstanding for around USD 6 bn in 2015, USD 10 Bn in 2016 and north of 8bn USD in 2017. These are only the “transparent” debts (bonds and publicly-known loans).

      I can get you the exact figures tomorrow, as I don’t have them at hand. If you are interested, please hit me up at dauz_ucv@hotmail.com to remind me.

      Best regards!

      • There is also a big chunk in legal judgments that they will be forced to pay over the next year, or so, as they run out of legal options to delay them.

  3. Is it not the case that Venezuela would have to do some relatively small things to improve its situation dramatically (i.e. stop giving away gasoline for free), whereas Greece just does not have a manufacturing or resource base to pay its debts? And solving problems in Greece, it being a functioning democracy, is going to be more complicated, requiring a level of consensus and buy-in, whereas solving problems in Venezuela will ultimately come down to having the backing of a relatively small group of powerful people, largely military people?

  4. Is it not the case that Venezuela would have to do some relatively small things to improve its situation dramatically (i.e. stop giving away gasoline for free),

    True.

    solving problems in Venezuela will ultimately come down to having the backing of a relatively small group of powerful people, largely military people?

    Solving the problems of Venezuela will include salvaging the nation’s ruined utility and transportation infrastructure, restoring the productivity of the oil sector, suppressing the hordes of violent criminals loose in the country, suppressing the heavily armed gangs of criminals and political thugs, purging the government and state enterprises of incompetent or no-show political hires, eliminating corruption in the police and civil service, and ending all the useless subsidies. And restoring all the expropriated and ruined enterprises, and making up the deficit in health care…

    It would be very difficult to accomplish all this even if the would-be reformists had a large occupying army in place.

    It won’t become possible because of the nominal support of military leaders who are deeply involved in corruption themselves.

    • The problem of finding money to pay debt seems relatively simple. Everything else Venezuela faces,I agree, not simple at all.

  5. “So will we ever become a Greek tragedy?”

    Murderzuela became a tragedy long ago, ever since 25,000 get Killed every year, not to mention the deaths from lack of medicine and proper care. Much worse than Greece.

  6. The main difference is that Venezuela is not on a currency union like the Euro, so unlike Greece, who cant make what would be the logical steps to address all this – a devaluation – Venezuela can do it at any time.

    Instead it keeps the bizantine system of I dont know how many exchange rates per I dont know how many different conditions. A system that is approaching theoretical status fast as it specifies the rates at which dollars could be bought, if there were any dollars…

  7. Since the Venezuela GDP is based nearly solely on oil exports, and since only a small fraction of the population is required to produce that oil, that means that most of the population of Venezuela is a liability to the Government. They consume, but do not produce. In order to avoid default, the government only needs to reduce the population drastically. They are already accomplishing this through voluntary ex-migration and homicide, but they need to step up the process. Ideally, they should bring the population of Venezuela down to about half, or 15 million. That should allow them enough personnel to maintain the military and support the remaining domestic industry. So, all they need to do is convince all the Oppo crybabies to just leave or find much more efficient ways of killing them off. That will ease the budget problems and allow them continue paying the debt.

    • This is a very poignant and important point , Venezuelas run away population growth these last decades has made the chaotic conditions of venezuelan life among the poor much worse than if the population growth had been more moderate . In 1960 Venezuelas population was 6 million and Chiles was 10 million , now Venezuelas population is over 30 million while Chiles population is 17 million , with more people the resources available to tend to their needs becomes streched to breaking point as do the capacity of strained and already dysfunctional govt services to meet the demand . thanks Roy for bringing this up.!!

    • “…most of the population is a liability to the government.” That is exactly right. What they are doing is the Mariel Boat Lift, Venezuelan version. Leave! Get the hell outta here if you don’t like it! Less malcontents. This is precisely their plan. People had better wake-up to this fact…

    • Absolutely right, Roy. Dictatorships do anything and everything to control their populations. But not just decimate them and reduce the numbers (even China with 1 child/home Law)

      They like smaller populations, but also Older populations and less educated, less informed, more brain-washed populations, above all. (kids and older people much easier to control and brain-wash)

      Look at Cuba, our own Masters:

      – First they killed or got rid of all the young professionals, educated people (same as in Cubazuela, about 1 million professionals GONE)
      – Then people start reproducing less, less food.. population grows old, very old.
      – Those left are “alphabetized” alright.. completely brain-washed.

      Until this is what you get:

      http://www.havanatimes.org/?p=99004

    • Why not? Population “adjustments” are common in left-wing dictatorships. Stalin didn’t have a problem. Mao starved millions. Fidel? PolPot?

      • India ( a democracy) has programs in place to try to control population growth among those that lack the means of taking care of their children , if the parents take care of their children then no controls are warranted but it they dont then they should be encouraged to have only such children as they have the capacity to take care of responsibly . this is done also throghout the US among ghetto populations where single mothers abandoned by their menfolk battle to raise their kids with some measure of responsability failing miserably at it and perpetuating poverty and inner city crime . The most succesful State handles it by proposing to women who already have a child and are young to have a long lasting contraceptive implant with all costs paid for by the social agency . The way the Chinese do population control is barbaric and violates human rights . Well conceived nudges like they use in the US are far more acceptable and ultimately useful to improve quality of life for the poor.

    • I was speaking “tongue in cheek” about population reduction. The fact that my comment seems to have been taken seriously, I find troubling.

        • Sometimes one can see a different issue behing the one which is being presented , I do think that in terms of how much most of our population can currently contribute to a modern self sustaining economy , there are quite a few that can contribute very little even if the economy must provide for their upkeep on humanitarian grounds . We used to live from our oil industry which was run by 40.000 employees in the old pdvsa days , asumming that productive activities account for the employment of 1 million of our economically active population there are many millions that are simply a dead weight in terms of their capacity to contribute meaningfully to that kind of economy , this dead weight sinks our economy in forcing it to attempt to meet needs and desires which it hasnt got the productivity to sattisfy , capacitating the millions of people forming this dead weight is a pretty nearly hopelss task , an impossible challenge . I enjoy bashing those regime meanies same as anybody but sometimes we have to reckon with our fundamental reality and how one can rationally and responsibly deal with it. !! for me its no joke but a dead serious concern which more people should take conscience of.

          • Bill,

            Given the territory and resources Venezuela has, it could easily double its population, assuming a restoration of normal domestic economic activity and productivity. The problem is that domestic production has been decimated and Venezuela is nearly completely reliant upon oil rents to survive.

            Venezuela needs to stop thinking of the oil income as the main course, and instead think of it as the dessert.

          • The ego gratifying myth that we are a very rich land capable of feeding everyone is a common one but one which must be seen with a lot of skepticism and caution , any thing that flatters our national sense of superiority is bound to be exagerated or down right false .

            the true riches lie not in the land or in its underground resources but in the character, social discipline , penchant for order , work habits and ingenuity of a people and in the excelllence of the isntitutions and organizations that they create and nurture . Not just individuals but organizations and collective corporations and bodies . There is very little evidence that if we count riches in the latter way we have anything to be fatuous about.

            Most of us being so mediochre we must use every leverage we can get including our oil resources to make a better life for ourselves, except that we must understand this resource more common sensically and pragmatically and not make it into a magic wand for the realization of miracles or into something we either childishly curse or boast about. Its just a tool that can help us reach a better life but alone it wont do the job that needs doing .

            I sometimes wonder whether if we could exchange half of our oil wealth for a company with the organizational productivity and capacity of a mitsubishi and a university like stanford we might not be making a very good bargain for ourselves.

            We might start by forming a hundred thousand farmers like those of Costa Rica .

            The problem is that RIGHT NOW we are a very poor country in terms of our human potential and getting that human potential developed is a 20 year job at least and meantime we cant allow ourselves to starve or fall into a rut that robs us of any chance for the future . That future goes thru the intelligent use of oil resources .!! but that only serves as a ladder to get to the real wealth that lies in a well capacitated people-

          • Well said!

            It’s been stated often but bears repeating: “Japan is a wealthy country, but also an overpopulated one with zero natural resources.”

          • Bill Bass: “That future goes thru the intelligent use of oil resources ”

            The problem is agreeing on what constitutes an “intelligent use”. From what I understand of your proposal, it involves having a small elite make the “intelligent” decisions, continuing with a petrostate model (i.e., misdirected incentives model), and excluding a large portion of the population which happens to be the portion that is not only in the worst economic situation but which also is the least fit to fend for themselves.

          • ayy sii. Ya me inscribi en la mision ‘Yo si puedo manejal esa vaina’. Polque cuarquiera pueda tomar decisiones inteligentes acelca de nuestros reculsos petroleros. Bueno, todo aquel que se haya graduado de la mision robinson con 20 puntos, como lo hise yo. Ademas, el Comandante eterno nos dijo que no hay tarea que no podamos ejelcel, solo hay que soñal y punto.

  8. You know Venezuela is bad when in Greece people say things like, “we don’t want to become like Venezuela…” – one of the New York Times’ articles earlier this week on the Greek crisis quoted a Greek pensioner who said just this.

    • Even in Ecuador they’re saying that. And remember Toilet Paper Face-lift Brazilians just gave their Cubazuelan embassy?

      Unknowingly, Chavismo has forced many countries, even Spain, to wake up against these populist, disguised new forms of Dictatorship.

  9. I think there’s two lessons to be had from all the Greek tragedy:

    1- Lenders will lend to those who tamper their macroeconomic data: Greece disguised the fact that their liabilities were much lower before the first bailout, which led to a shock once the honest numbers were unveilled. Official figures need more scrutiny and controls than previously thought, or lenders should not be as trustworthy of numbers from countries with an important economical baggage in its history (Greece is some sort of systematic defaulter). Compare this to what Venezuela might face after all this “official/non official rate” nonsense, which would leave us out cold in practice, once we have to start scraping the pan. You do bring up a valuable issue here: out debt/GDP ratio is 64% ONLY when an official and surreal exchange rate is applied. What happenes with Simadi? or worse, with black market prices -which seem to be standarizing the country’s goods’ prices-?
    2- In kind of a silver lining, Greece’s experience can also proove surprisingly useful. I’m not reffering to current Greece, but the one from the 1990’s that was playing catch-up with Europe in order to be able to be inserted into the EU: the one that reigned in its inflation problem down to German standards from 62% down to 3,2% in 5 years. Economists and politicians should dig deeper into what Greece did well some 20 years ago in order to stabilize itself and bring the dawn of biggest Greek growth since the country’s post-war industrialization. Combine that knowledge with what could be learned from this tragedy and it’s pretty much a survival kit for poorly managed countries.

    • I agree. Tsipras will use the “No” vote and the ensuing economic disaster to claim a mandate for radical change. He will disable the democratic institutions of the country and consolidate permanent power. All problems will be blamed on Capitalism, the banks, the EU politicians, the Neo-Liberals, etc…

  10. A Venezuela todavía le falta que le metan el corralito, que ya lo habían hecho con los dólares, pero que lo hagan ahora con los bolívares.

    En Grecia salieron del chavistoide cría vagos, al chavista que les zampó corralito a los griegos por la jeta.

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